1. The global challenge for real estate investors is to find value in a world where low interest rates have pushed asset prices, including residential property, to the full. Even private investors are now banking more on what a property can actually provide for them – either in terms of amenity or additional income – than on capital growth. City properties in great locations, either historic settings or sunbelt, are becoming increasingly sought after. Buyers all over the planet are beginning to recognise that neighbourhoods offering a high quality of life will appreciate in value, not just so many square feet of bricks and mortar.
2. We think there are still some enclaves in 2017 with scope for capital growth but these are few and far between. Europe as a global region has seen less of the effect of falling capitalisation rates which have characterised major US and Asian cities, so we expect some further growth even in major cities. In the main however, only higher yielding secondary and tertiary properties, rather than prime, are likely to see residential property growth through asset value catch-up.
3. With yields now at their lowest ever levels globally, the drivers of capital growth in future will be occupier demand and subsequent rental growth rather than competition between investors. After 2017, the fundamental quality of places will start to matter much more to buyers. Real estate will behave less like a commodity and so the emphasis will be on what value can be added rather than how it will automatically appreciate over time.
4. The biggest opportunities for growth lie outside developed economies, outside the famous world cities and outside prime areas. The trick is spotting the next up and coming, neighbourhood, city or economic region. At a global scale, it is less developed regions which have the greatest potential for growth as growing middle classes become homeowners or pay higher rents. The fundamentals will matter but levels of risk and lack of transparency in Africa, South America and less developed parts of Asia mean that buying property in these regions is not for the faint hearted.
Yolande Barnes is Head of Savills World Research
See Christie’s predictions here
Next up: Nathan Brooker, property writer for FT House & Home